Martha and Marlon just had their first baby, and Martha is taking time off work. That means they depend on Marlon’s income now to pay the bills. They plan to sell their sports car and buy a new family car. They pay for it with a $25,000, five-year loan. They want to insure the loan to cover the payments if Marlon dies or can't work.
They consider two choices:
1. Buy life insurance and disability insurance from the car dealer.
2. Get a five-year term life insurance policy for $25,000 plus private disability insurance.
Here’s what they learn about their choices:
|
Type of insurance |
Death benefit at start |
Death benefit at end |
Monthly premiums |
Total they spend over five years |
|
Dealer loan insurance (includes life & disability to pay $500 a month) |
$25,000 |
$0 |
$59.00 |
$3,540.00 |
|
Five-year term life insurance for Marlon |
$25,000 |
$25,000 |
$ 7.40 |
$ 443.75 |
|
Private disability insurance for Marlon (to pay $500 a month) |
N/A |
N/A |
$22.83 |
$1,370.00 |
Martha and Marlon decide: They’ll pay half as much for better coverage if Marlon gets his own life and disability insurance. Most importantly, the death benefit doesn’t change over the five years. And, Marlon can renew or convert to permanent life insurance without taking a medical exam if he gets a convertible term life insurance policy. They wouldn’t get this benefit if they bought insurance through the dealer; they would have to re-qualify each time they buy a new car.